The July reading of 53.3 was revised down from 53.6, but still marked a significant upturn in fortunes when compared to the dire readings of previous months.
Output growth accelerated to the fastest since November 2017 supported by the sharpest rise in new order volumes since the end of 2018 (and the first rise of any kind since February), amid reports of new order inflows starting to pick-up in several markets, including parts of Europe, the US and Asia.
Confidence rose to its highest since March 2018, with 62% of companies expecting production to be higher one year from now. Only 12% of firms forecast a contraction. Sentiment strengthened across the consumer, intermediate and investment goods industries.
However, employment in the sector fell for the sixth consecutive month, albeit to the least marked extent since March. Where job cuts were registered, it was linked to redundancies, natural wastage and aligning capacity with current output needs.
Rob Dobson, Director at IHS Markit, which compiles the survey, said: “The UK manufacturing sector started the third quarter on a much firmer footing, with output growth hitting a near three-year high and new orders rising for the first time in five months. The recovery strengthened as a loosening of lockdown restrictions allowed manufacturers to restart or raise production. July also saw signs of furloughed employees returning to work and customers resuming spending. Business optimism also rose to its highest for over two years as companies grew more hopeful that the future has brightened.
"Despite the solid start to the recovery, the road left to travel remains long and precarious. An extended period of growth is still needed to fully recoup the ground lost in recent months. This is also the case for the labour market, where job losses are continuing despite businesses reopening. There is a significant risk of further redundancies and of furloughed workers not returning unless demand and confidence stage more substantial and long-lasting rebounds in the months ahead."